Intertemporal consumption and credit constraints: Does consumption respond to an exogenous shock to credit?

TY - JOUR

T1 - Intertemporal consumption and credit constraints

T2 - Does consumption respond to an exogenous shock to credit?

AU - Leth-Petersen, Søren

N1 - JEL classification: D14, D91, E21

PY - 2010/6

Y1 - 2010/6

N2 - There is continuing controversy over the importance of credit constraints. This paper investigates whether total household expenditure and debt is affected by an exogenous increase in access to credit provided by a credit market reform that enabled Danish house owners to use housing equity as collateral for consumption loans. We find that the magnitude of the response is correlated with the amount of equity released by the reform and that the effect is strongest for younger households. Even for this group, the response was moderate. The aggregate effect of the reform was significant but small.

AB - There is continuing controversy over the importance of credit constraints. This paper investigates whether total household expenditure and debt is affected by an exogenous increase in access to credit provided by a credit market reform that enabled Danish house owners to use housing equity as collateral for consumption loans. We find that the magnitude of the response is correlated with the amount of equity released by the reform and that the effect is strongest for younger households. Even for this group, the response was moderate. The aggregate effect of the reform was significant but small.

U2 - 10.1257/aer.100.3.1080

DO - 10.1257/aer.100.3.1080

M3 - Journal article

SN - 0002-8282

VL - 100

SP - 1080

EP - 1103

JO - American Economic Review

JF - American Economic Review

IS - 3

ER -